What happens when a homeowners association (HOA) director’s term expires before their successor can be elected? This is a quandary faced by many HOAs for various reasons. Perhaps the HOA has been unable to achieve a quorum for an election of directors, or particularly frequent in smaller communities, there are no willing replacements. Fortunately for the overwhelming majority of South Carolina HOAs which are nonprofit corporations, there is helpful guidance applicable to this issue set forth in South Carolina’s Nonprofit Corporation Act (the “Act”).[1] While this article is not intended to serve as a comprehensive answer to any issues associated with “holdover” directors, it is our hope that the information regarding the applicable law may be of assistance when evaluating this common predicament.
The Act provides that, despite the expiration of a director’s term, the director continues to serve until the director’s successor is elected, designated or appointed, and qualifies, or until there is a decrease in the number of directors.[2] In other words, just because a director’s term has expired does not mean they cease to be a director before their successor is in place. As the Official Comment to the Act notes, this section “prevents chaos” by providing continuity on the board until their successors take office.[3]
Of course, while this is certainly a helpful provision, it should not be used as a means of intentionally prolonging board service without justification.
For example, if an HOA fails to meet quorum after an attempt to hold a meeting for the election of directors, the HOA should not just abandon any additional efforts to have an election and rest on the Act to argue that a director can serve in perpetuity. HOA directors, to include the holdover directors, still owe fiduciary duties to their HOA and should continue to make good-faith, reasonable efforts to facilitate the election or, as appropriate, appointment, of a successor to the director whose term has expired. As always, the HOA should consult with its own governing documents for further provisions. Moreover, while there is not currently a statutory provision or published South Carolina case law declaring that a holdover director has less authority than any other director, the HOA may be well-served to be cognizant of the practical probability that residents might be more likely to scrutinize or challenge board actions taken by one or more holdover directors. This is all the more reason to continue to make reasonable efforts to facilitate having a successor in place despite the helpful protection set forth in the Act. Moreover, as no two situations are identical, and given the potential for legal challenge in disputes regarding HOA governance, it is always prudent to consult with legal counsel regarding your specific situation.
This article is not intended to be an exhaustive discussion of “holdover directors” and the SC Nonprofit Corporation Act, nor any guarantee of the outcome of any litigation regarding the same. Our attorneys at McCabe, Trotter & Beverly, P.C. are experienced and well-equipped to answer questions you may have regarding this topic. Please contact us at 803–724–5000 for further information.
Valerie Garcia Giovanoli
McCabe, Trotter & Beverly, P.C. blogs and other content are for educational and informational purposes only. This is not legal advice and does not create an attorney/client relationship between McCabe, Trotter & Beverly, P.C. and readers. Readers should consult an attorney to understand how this information relates to their personal situation and circumstances. You should not use McCabe, Trotter & Beverly, P.C. blogs or content as a substitute for legal advice from a licensed attorney.
[1] S.C. Code Ann. § 33-31-101 et seq.
[2] S.C. Code Ann. § 33-31-805(d) (emphasis added).
[3] S.C. Code Ann. § 33-31-805 Official Comment.